American Institute of Certified Public Accountants (AICPA) Practice Exam

How does investing in an investment club affect independence?

1. It has no impact unless the club invests in public companies.

2. It is considered an indirect financial interest, impairing independence if material.

3. It is allowed regardless of materiality.

4. Independence is compromised only if the member manages the investment club.

The correct answer is: It is considered an indirect financial interest, impairing independence if material.

Investing in an investment club can have implications for a CPA's independence due to the nature of financial interests involved. When a CPA participates in an investment club, they may be viewed as having an indirect financial interest in the investments made by that club. This means that if the investments or interests are significant enough, they can impair the CPA's independence regarding their ability to perform audits or other attestation services for clients involved with those investments. The key factor here is the materiality of the financial interest. If the investment in the club is substantial and can influence the CPA's judgment, it constitutes a relationship that can compromise impartiality. Therefore, the correct response addresses the potential impact on independence based on the materiality of the investment. The other options do not accurately reflect the standards of independence set forth by the AICPA. For instance, suggesting that there is no impact unless the club exclusively invests in public companies overlooks the general rule regarding indirect financial interests. The reasoning that independence is allowed regardless of materiality misrepresents the importance of the threshold that financial interests can have on a CPA's judgment. Lastly, the notion that independence is compromised solely if the member manages the investment club fails to consider that passive investment can also present indirect interests that affect professional